. Oil Prices Surge on Strong US Demand - Capital Street FX

Oil Prices Surge on Strong US Demand

Oil Prices Surge on Strong US Demand

02 Aug 2023

Oil Prices Surge as US Inventories Indicates Robust Demand.

Introduction

In the latest market update, oil prices witnessed a significant increase due to robust demand, as indicated by data from US inventories. This surge has pushed oil prices close to their highest levels since April. Let’s delve into the fundamental overview and technical analysis of Brent crude oil and explore the factors contributing to this upward trend.

Fundamental Overview

Crude and Gasoline Inventories Drive Up Oil Prices

On Wednesday, oil prices experienced an uptick following a report on crude and gasoline inventories, which showcased strong demand in the United States. At 0949 GMT, October Brent crude futures saw a rise of 44 cents, or 0.5%, per barrel, while September West Texas Intermediate crude for the US increased by 48 cents, or 0.6%, per barrel.

Surprising Drawdown in US Crude Oil Stockpiles

According to the American Petroleum Institute (API) data, US crude oil stockpiles plummeted by a staggering 15.4 million barrels during the week ending July 28. This drop far exceeded analysts’ predictions, which had forecasted a loss of only 1.37 million barrels. If the US government statistics corroborate this drawdown, it would mark the most substantial decrease in US oil stockpiles since 1982.

Decline in Gasoline and Distillate Stocks

In addition to the decline in crude oil stockpiles, API data also revealed a decrease of 1.7 million barrels in gasoline inventories, surpassing the predicted 1.3 million-barrel decrease. Distillate stocks also saw a decrease of 510,000 barrels, which contradicted the projected increase of 112,000 barrels. Both these indicators point toward a strong and immediate demand for gasoline in the United States.

Crude Oil Taking Over the Bull Baton

Analysts from PVM Oil note that while oil prices had recently been influenced by products, the remarkable draws in API data have shifted the focus back to crude oil, propelling it forward in the market. As demand outpaces supply, driven by production cuts from Saudi Arabia, crude oil inventories have also started to decline in other regions.

OPEC+ Expected to Maintain Output Strategy

In an upcoming meeting of producers, Saudi Arabia is anticipated to extend its voluntary oil output cut of 1 million barrels per day (bpd) for an additional month, covering September. The Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, along with allies like Russia, known as OPEC+, are likely to maintain their current oil output strategy due to tight supplies and resilient demand driving an upward trend in oil prices.

Concerns Surrounding China’s Oil Demand

Despite the surge in oil prices, there are concerns that China, the world’s largest oil importer, may experience a slowdown in fuel demand. Disappointing PMI data reported during the week suggests that fuel demand in China might be weaker than anticipated.

Brent Crude Oil Technical Analysis Daily Chart

Technical Overview

Brent Crude Oil is currently trading within an up channel, signaling a bullish trend. Additionally, it is positioned above all Simple Moving Averages (SMA), indicating further potential for price growth. The Relative Strength Index (RSI) is in the buying zone, while the Stochastic oscillator supports an upward trend.

Resistance and Support Levels

The immediate resistance level for Brent Crude Oil stands at 85.82, while the immediate support level is at 84.90. These levels are critical in determining the future price movement of the commodity.

How to Trade Brent Crude Oil

Brent crude oil has shown an upward breakout after a consolidation phase, and the prices have been surging strongly. Currently, the commodity is trading near a crucial resistance level, and if this level is breached, further upside is expected.

Trade Suggestion

Based on the current technical analysis, a Buy signal is indicated for Brent Crude Oil. Traders can consider entering at 86.35, setting a take profit level at 87.46, and placing a stop loss at 85.67 to manage potential risks.

Conclusion

The recent surge in oil prices, driven by strong US demand and significant drawdowns in inventories, has led to bullish market sentiment. As OPEC+ is expected to maintain its output strategy and Saudi Arabia likely extends production cuts, the upward trend in oil prices is expected to continue. However, concerns over China’s fuel demand and potential economic slowdown remain crucial factors to watch. As traders consider the technical indicators and trade suggestions, it’s essential to remain vigilant and monitor market developments closely.

FAQs

What led to the increase in oil prices?

The surge in oil prices was driven by strong demand as indicated by data from US inventories, showing significant drawdowns in crude oil, gasoline, and distillate stocks.

What could impact future oil prices?

Future oil prices may be affected by the decisions made during the OPEC+ meeting, the extent of Saudi Arabia’s oil output cut extension, and any developments in China’s fuel demand.

Why is the decline in US crude oil stockpiles significant?

The drop in US crude oil stockpiles is the largest in decades and suggests that demand is outpacing supply, further influencing the upward trajectory of oil prices.

How is China’s fuel demand affecting oil prices?

Concerns surrounding China’s fuel demand and potential slowdown could impact global oil prices, given that China is the world’s largest oil importer.